posted Mar 7, 2012, 2:00 PM by Patty Langlois [ updated Mar 7, 2012, 8:34 PM ]
Are your parents living in a home that has appreciated in value? Are they no longer receiving any tax benefits during their retirement years?
With one stroke of the pen, both you and your parents can win: They’d gain instant access to their home equity (without moving out) and you’d pick up some generous new tax deductions.
How? Buy your parents’ house, and then rent it back to them-at the going fair market rental rate.
Why, you ask? Under the current homeownership setup, chances are your combined family unit is OVER paying the IRS.
Your parents’ mortgage is either paid off or the payments represent mostly principal at this point. Even if they still take interest deductions, your parents’ tax bracket might be lower in retirement, so those deductions don’t provide much tax savings. In fact, many retirees take the standard deduction rather than itemizing.
Here are two good reasons for your parents to opt into this plan:
1.) It puts cash in their pockets without them having to refinance or dip into a home equity loan.
2.) It allows them to put their money into safer investments than the real estate market.
To avoid gift-tax implications, pay a fair price for the home. Support the buying price with a qualified and independent appraisal. Then both sides should enter into a lease at a fair rental value.
NOTE: Courts have said that landlords can reduce their fair-market rent by 20% when renting to relatives. That lower rent reflects the savings in maintenance and management costs.
Once you own your parents’ house, you’re entitled to reap the tax benefits of owning rental property.
BONUS: Once you own the house, you may be able to write off occasional travel expenses you incur when visiting the house (your rental investment).
CALL FOR MORE DETAILS!